Chancellor to overhaul £330bn coronavirus business loan scheme after backlash

A screen-grab of Chancellor Rishi Sunak speaking at a media briefing in Downing Street, London, on coronavirus (COVID-19). (PA)

Chancellor Rishi Sunak is poised to overhaul the government’s £330bn support scheme for small businesses, following a backlash over how the scheme was being run and warnings that millions of firms could go bust without further action.

Sky News reported late on Wednesday that Sunak would announce changes to the Coronavirus Business Interruption Loan Scheme (CBILs) as soon as Friday.

The Treasury promised to guarantee £330bn-worth of loans to small businesses to help them weather the current storm. Businesses could apply for loans of up to £5m, which are interest free for 12 months. The government promised to cover any losses on the loans made by banks up to 80% of the loan value.

The scheme was part of an “unprecedented” package of support for small businesses and was worth around 15% of UK GDP. However, the programme has met with almost constant criticism since its launch.

Around 40 financial institutions are doling out coronavirus support loans on behalf of the government but businesses say the banks are being too slow and in some cases profiteering.

Sky News said Sunak is planning to remove the requirement for banks to asses applicants for standard loans before looking at the government scheme. The idea is that this should speed up the process.

The Chancellor is also said to be in talks to get the banks to agree to a limit the interest rates charged on these loans after the 12-month interest free period expires.

A spokesperson for UK Finance, the banking industry body, said: “This is a new scheme delivered at pace and there will be issues that need to be addressed.

“That is why we have been working closely with government since implementation to ensure the scheme can operate in the best way possible to get money to viable businesses that need it as quickly as possible.”

The changes come as business groups warn millions of companies could go under unless the governments can get cheap financings to firms faster.

“Millions of fantastic small firms are facing collapse,” Mike Cherry, chairman of the Federation of Small Businesses (FSB), said on Wednesday night. “They were promised interest free, fee free, government-backed support from banks. Many of them are in urgent need of it today, and it’s not being made available.”

The UK Finance spokesperson said: “Lenders are working hard to get financing to all viable businesses who need it as quickly as possible, whether through the Coronavirus Business Interruption Loan Scheme if the business is eligible or by providing additional financial support through normal commercial arrangements where appropriate.”